A steady supply of LNG continues to arrive in Europe, keeping the continent on track to have storage inventories filled to 80% of capacity by November. 

Natural gas prices in Europe and the UK declined Monday. European storage inventories are at nearly 72% of capacity, or just above the five-year average. 

Russian gas flows to the continent were stable as the week got underway. A 2% drop in Norwegian flows because of unplanned maintenance at the Sleipner field that isn’t expected to be resolved until Thursday had little impact on prices.

Tudor, Pickering, Holt & Co. said last week it is now modeling European inventories to reach 3.45 Tcf by the end of injection season, just above the five-year average of 3.4 Tcf. 

On Edge

The forecast still hinges on a steady supply of Russian imports, keeping the market on edge. The Kremlin cut Nord Stream 1 deliveries to 20% of the 6 Bcf/d system’s capacity in July. The reduction was blamed on compressor station turbines that needed to be repaired. One turbine is still stuck in Germany, and Russia has indicated it can’t take delivery of the unit because of sanctions, which Germany said is not true. 

Scorching heat forecast for parts of the continent this week is also likely to keep things volatile. Hot weather has continued pushing European power prices to record highs in recent days. 

German polymer company Covestro AG warned last week that supply chains could be severely disrupted if natural gas supplies drop further and the continent is forced to ration gas. The European Union is already trying to cut consumption by 15% among all sectors through the spring in response to reduced Russian deliveries. 

Wildcard in Asia

Another wildcard is Asia. China’s liquefied natural gas imports have declined this year amid an economic slowdown, while high spot liquefied natural gas prices have made it difficult for buyers in Bangladesh, India and Pakistan to secure supplies. Suppliers in India have been rationing gas, while Bangladesh faces rolling black-outs because of a gas shortfall. 

However, Japan and South Korea, among the world’s largest LNG purchasers, have fueled a rebound in Asian buying as weather has been hotter than normal. China is also expected to increase imports in the months ahead, according to Goldman Sachs Commodities Research.

“We expect this to increase competition for LNG, lowering European imports versus current levels,” said Goldman analysts led by Samantha Dart. “This will in our view put the burden of European rebalancing back on demand, requiring it to drop further to guarantee comfortable storage ahead of winter.”

South Korea also wants to restock its storage inventories to 90% of capacity by November. The country’s energy ministry said state-owned Korea Gas Corp. would boost LNG buying on the spot market to lift inventories from their current level of about 35%. 

Meanwhile, a Jera Co. Inc. affiliate released a tender to buy one LNG cargo monthly from November until March 2024, according to Bloomberg. Jera is Japan’s largest power company. 

Japan-Korea Marker (JKM) spot prices jumped above $50/MMBtu last week, while front-month JKM futures have been about $5 below the European benchmark Title Transfer Facility contract over the last week or so.

Freeport LNG Restart

In the United States, prices jumped sharply in the middle of last week after Freeport LNG said it reached an agreement to bring its facility back online by early October. The timeline had been expected, but traders were anticipating a more gradual restart. The 2 Bcf/d terminal has been offline since June when an explosion and fire shut it down.

Henry Hub prices finished the week lower as a cooler mid-August weather outlook weighed on the contract. Forecasts were trending cooler Monday, when the prompt month continued to slide. 

NatGasWeather noted that natural gas production volumes in the United States are approaching all-time highs above 98 Bcf/d, while the Energy Information Administration reported a larger-than-expected storage injection last week, further improving the supply outlook.

Oil also had its worst week since April. The Brent October contract finished Friday at $94.92/bbl, well below an intraday high of over $125 in June. Weak demand and the possibility of slower economic growth have pushed oil lower.

“However, supply growth remains relatively weak, especially given the higher price environment throughout 2022,” said Schneider Electric analyst Robbie Fraser in a note to clients Monday. “OPEC-Plus has limited potential for further gains and U.S. output continues to climb only gradually.”

Brent was back above $95 on Monday as volatility continued. 

Beyond commodity markets, the U.S. Senate passed the Inflation Reduction Act over the weekend. The bill includes roughly $370 billion for alternative energy and a cut in greenhouse gas emissions. The House could pass the landmark bill this week.

In Asia last week, Japanese trading houses Mitsui & Co. and Mitsubishi Corp. wrote off a combined $1.7 billion related to their investments in Russia’s Sakhalin-2 LNG facility. The trading houses hold a combined 22.5% stake, but Russian President Vladimir Putin ordered that rights in the Sakhalin partnership must be transferred to a Russian company. Foreign investors have to take news shares in the Russian entity. 

Japan has indicated it wants to keep its stake in the terminal. The facility provided about 9% of Japan’s LNG imports last year.  Shell plc, the only other foreign investor in Sakhalin-2, said earlier this year it would divest its 27.5% stake.